MReport May 2021

TheMReport — News and strategies for the evolving mortgage marketplace.

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M R EP O RT | 31 national money players). Mortgage borrowers will in some way be required to pay back the deferred interest. The interest rate expecta- tions of those who purchase MBS securities will be upheld in the end, and the political influence of mortgage borrowers will be secondary. The MBS industry is dependent upon the international investment community. The MBS industry must cater to the needs of the international community in order to continue to attract their capital, which is necessary to fund U.S. mortgages. International capital can go elsewhere with a stroke of a pen or a phone call. The international community holds no commitment to funding the U.S. mortgage market. None. Hence, the international com- munity holds the trump card. Therefore, every solution, at the borrower level, falls to the mortgage originator and servicer, despite the sale of a mortgage loan and the creation of the MBS shift- ing the controlling interest from state and federal lending laws (the primary market) to international securities law. To resolve the forbearance problem, the industry must ad- dress the needs of the secondary market; those folks who invested their capital based upon the financial projections for the loan at the time of origination. These projections did not include any postponement of interest due to forbearance, for example. The sale of a loan into the secondary market, usually as an element of an MBS, alters the dynamics of the loan forever. The sale marks the transition of the loan from the purview of federal and state law (often subject to the whims of politicians) to one subject to the securities laws and the many different, international flavors thereof. An MBS security may be purchased by an entity in China or Germany, neither of which has much interest in the politics of the U.S.. These investors are simply interested in getting their interest income as specified and their prin- cipal returned, also as specified. Any other interests, such as the politics of forbearance, are beyond the scope of the international MBS investor. Also, there is a body of law to support their perspective. What this means is as follows: any attempt to simply forgive the interest owed during forbearance is highly likely to be rejected outright by the worldwide investment community that the U.S. needs to fund its mortgage industry. These investors cannot be ignored, nor are they easily persuaded. Hence, any forbearance recov- ery guidelines in all likelihood must address postponed interest that must be repaid. . THOMAS SHOWALTER is the Founder and CEO of Candor. He has held a variety of key executive experiences holding positions as CEO, C-level executive, SVP, and VP across a variety of nationally known firms: Digital Risk, CoreLogic, First American, Loan Performance, Experian, and several boutique data and analytics firms. His background also included a stint at NASA, where he developed a variety of aerospace technologies for use in civilian and military aircraft, as well as the former Space Shuttle program. SOMETIMES, IT'S GOOD TO BE A FOLLOWER. Follow MReport on social media to put the latest mortgage banking news, stories, strategies, and insights at the touch of your fingertips. MReport @TheMReportNews The MReport powered by THEFIVESTARINSTITUTE FEATURE

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